Retailer warns of W739.5b cash shortfall by May amid worsening liquidity crunch
Homeplus, South Korea’s second-largest hypermarket chain, laid out a dire financial picture in its March 4 filing for court-led rehabilitation, citing a crippling cash shortfall that could trigger insolvency by May without drastic intervention.
According to the court application obtained by a local news outlet on Thursday, the retailer projected its cash shortage would reach 18.4 billion won ($12.6 million) by March 17 and could soar to 739.5 billion won by the end of May.
The company pinned its deteriorating financial state on a credit rating downgrade from A3 to A3- in February, which jeopardized its ability to secure short-term financing and could push it to the brink of bankruptcy in May.
“Following the credit downgrade, the company proactively applied for rehabilitation proceedings to avoid disruptions in short-term funding,” the company said.
Homeplus projected a worst-case scenario of insolvency within two months, with its bleakest projections assuming it cannot refinance 649.8 billion won in accounts payable and short-term corporate bonds as of February 28. The retailer has heavily relied on short-term bonds and corporate purchase cards averaging 500 billion to 600 billion won to fund operations.
“The projection was drawn up based on the most extreme scenario,” a Homeplus official explained regarding the plan’s rationale. “We also informed the court that the cash shortage is likely to occur in May.”
The company anticipated its cash flow crunch to worsen, with the shortfall projected to surge from 18.4 billion won on March 17 to 229.8 billion won by the end of March, 526.1 billion won by April and over 739.5 billion won by the end of May.
Counting on the court’s relief concerning deferred repayments, Homeplus anticipated boosting its cash holdings from 130 billion won on March 1 to 277.9 billion won by the end of May.
The rehabilitation plan, the retailer explained, will focus on reducing the burden of fixed and financial costs, as consistent cash flow from operations is insufficient to cover financial outflows related to lease liabilities and financial debts.
Homeplus said it plans to develop a rehabilitation plan to repay most financial creditors through interest rate adjustments and revised repayment conditions, while aiming to fully repay its trade credits. The company also intends to renegotiate rental agreements for stores sold and leased back to improve cash flow.
Earlier this week, the court extended Homeplus’s rehabilitation plan deadline to June 12, with its creditors list now due by April 10.
Homeplus’s sales for the 12 months ending January 31 totaled 7.04 trillion won, with an operating loss of 234.9 billion won. Financial expenses climbed from 393.3 billion won in 2022 to 457.3 billion won in 2023 and further to 549.3 billion won last year.
The retail giant posted operating losses of 260.2 billion won in 2022 and 199.4 billion won in 2023.
Its total debt stood at around 8.5 trillion won as of the end of January, including lease liabilities of 2.4 trillion won, long-term borrowings of 1.6 trillion won and 1.1 trillion won in redeemable convertible preferred stocks.
Despite harsh financial headwinds, Homeplus remains optimistic about its future. “As a longstanding company, we can remain well-established by improving cash generation and reducing high financial costs to restructure the balance sheet.”
minmin@heraldcorp.com
